Question

Exercise 8-26 (Algorithmic) (LO. 3) Mckenzie purchased qualifying equipment for his business that cost $473,800 in 2019. The taxable income of the business for the year is $11,200 before consideration of any § 179 deduction. If an amount is zero, enter "0". a. Calculate McKenzie's $ 179 expense deduction for 2019 and any carryover to 2020. $ 179 expense deduction for 2019: $ 5,600 X $ 179 carryover to 2020: $ 206,400 X b. How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment instead of using $ 179 expensing? Hint: See Concept Summary 8.5. $ 179 expense deduction for 2019: $ 0 $ 179 carryover to 2020: $ 0

Answer 1

Answer:

As per business income limit rule section 179 deduction can be taken maximum upto the current period taxable income.
The disallowed amount of period for asset placed after year 2015 can be carry over for unlimited numbers of years
As per 2018, 179 rule, Bonus amount can be availed upto 100% of eligible asset cost:

a)
McKenzie's Section 179 expense deduction is $114,900 for 2019
His section 179 carryover to 2020 is (473800-114900) = 358900

If first year Bonus is availed:

b)
McKenzie's section 179 expense deduction is 0 for 2019
His section 179 carryover to 2019 is 0
Because balance has been closed to first year bonus.